Buyer’s Agents: Don't Buy a House Without One
Real estate has changed hands for eons. For most of history, buyers and sellers somehow managed to get together and agree on the specific terms of the transaction. Regardless of the property type, value, size or location, no changes to the concept of selling real estate were suggested or put into place -- at least until the mid-1980s. This pivotal point in real estate selling methods marked the advent of the buyer agent, a position finally created to provide equal representation to the buyer.
After all, the buyer, historically, was on his own. The agent that the buyer dealt with worked for, and had a fiduciary responsibility to, the seller. Consequently, the buyer got the least possible information regarding the reason for sale, negotiation flexibility, or any specific terms that may in fact ultimately benefit the buyer, unless mandated by law.
It is up to the selling agent to get the highest price with the fastest close, making certain the buyer is properly vetted financially so as not to waste time by the taking the property off the market only to find out the deal will not happen.
So who previously represented the poor buyer who was walking blindly during the entire process? No one! Even the real estate attorney the buyer most likely hired to be at the closing has nothing to do with the initial negotiations.
The buyer typically sees the house; he or she, hopefully, sets up an inspection, agrees on the price, applies for the mortgage, and waits for a closing date. But that is the uninformed buyer of yesteryear. In today's world, a savvy buyer either does plenty of research on a property before signing an agreement and (or instead) chooses to work with a buyer's agent.
What exactly is a buyer's agent? They are licensed real estate agents, in most cases a Realtor®. (Not all agents are Realtors. A Realtor belongs to a rated real estate board that oversees the agents in a particular area. It's like a Better Business Bureau for the real estate world.) They may choose only to represent buyers, but most buyer’s agents work on both sides of the fence. They can't, however, represent both sides of one transaction any more than an attorney can handle both parties in a lawsuit.
What can they do for you? Lots. Since buyer’s agents have access to the same MLS listing information as seller's agents, they can give you information the seller's agent won't and legally can't. For instance, a particular house may have been on the market for three years, with six different companies, and the owners are eager to negotiate the price.
Any number of reasons could account for the slow sale. Perhaps the house has leaks and water damage not readily discernable, or it was the scene of a murder, or it is the last street in town to get plowed after a storm. Maybe the neighbors are noisy troublemakers, or the homeowners association is going to charge everyone a $5,000 assessment for a new pool in the spring. These are all things the seller's agent will not divulge, but a buyer's agent can and will.
Regulations vary by state when it comes to compensation. The average real estate commission on a residential property is 6%. That means 3% goes to the selling agency and 3% goes to the buying agency. These could easily be the same agency, and they frequently are. It can happen, for example, when "Sally" lists the house for sale and sells it as well (she can only do this if she is not a buyer's agent for that deal).
However, when it comes to paying a buyer's agent, there is a lot of contention as to where that money should originate. The homeowner has no say about this since it's all stipulated in the listing contract.
So what happens if you, the buyer, just show up with a real estate agent of your own, someone who is not a buyer's agent? Don't fool yourself; that lovely gal who has been driving you around for two weeks house hunting doesn't care about you. She works for the seller, and her job, just like the listing or selling agent, is to make the best possible deal for the seller, not you.
And what happens if your Aunt Joan gets her real estate license and wants to help you find a house? Well, Aunt Joan might be the sweetest little thing this side of heaven, but again, her job is not to keep you happy; she has a fiduciary responsibility to the seller of the homes that interest you.
What is the difference? The difference is that if you are working with a "regular" agent who still represents the seller, at the time of the transaction, your agent and the selling agent both work for the same person: the homeowner. If you bring a buyer's agent to the table, that person represents your best interests, and the others are aware that you, the buyer, are privy to information that could affect the actual sale (and for a good reason).
If you are in the market for a new home, be prepared. Remember that unless you have a buyer's agent, no one in the course of that entire transaction is going to look out for your best interests.
Not all agents can work as buyer's agents. Since Aunt Joan must adhere to specific rules and regulations, she also needs a special certification in addition to her real estate license.
How do you go about this entire process? First, find an agent you know you can work with and trust. Ask if she can represent you as a buyer's agent; if so, she will have you sign a contract outlining what her responsibilities are and who will pay her.
You have the right to stipulate that you are only interested in looking at homes that do not prevent a buyer's agent from being paid from commissions earned. In turn, she now has the right to ask listing agents to go back and re-negotiate commissions. After all, the goal is to sell a house to a qualified buyer. Not many sellers will blatantly refuse to sell to a qualified buyer with a buyer's agent who needs a commission paid.
With proper representation you will be able to have access to all the information you need to make an informed decision. Adequate preparation is the key to sailing through escrow and closing.